Buying a Business and Confidentiality

As businesses begin to feel the pinch, perhaps now is a good time to make a move to purchase a business. Nobody needs to be told that times are beginning to become more than a little tough right now for most businesses, from some of the smallest to some of the largest, due to the effects of the economic climate we are currently experiencing. Indeed, it is predicted that a relatively high proportion of smaller businesses are changing hands at a rate that has not previously been seen.

Unsurprisingly, this is often due to liquidity problems, which forces the sale of a business upon the owners, and there happen to be a great deal of buyers taking advantage of this by way of purchasing either businesses or assets. For those on both the buying and selling ends of this type of exchange and especially for those considering buying or selling a business, there is one piece of advice that is not being heeded as much as it should. This advice is that, when buying or selling a business, secrecy is of paramount importance.

Of course, the reasons why are obvious when one thinks about it yet confidentiality is not always as strict as it should be. What appears on every other front to be a watertight exchange can be easily ruined if details of the deal get out before it is necessary for the details to be made known to the right people. As a result, it is hugely important to ensure that the details remain under lock and key as they can. If the details get out before they are supposed to it can, in some cases, not only destroy relationships with both customers and suppliers but also lead to the possibility of employees leaving if they happen to discover any inclination of a future deal regarding the company they work for.

In addition to this, some people do not fully consider the legal side of the sale and purchase of a business. To try and make people more aware of this, the Information Commissioner’s Office published new guidance in June 2008 to assist organisations in their compliance with the Data Protection Act, particularly when providing details about their employees under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (also known as TUPE).

TUPE guarantees that employees’ terms and conditions of employment are preserved when a business or undertaking is passed over to a new employer. TUPE achieves this by ensuring that certain details are provided to the new employer prior to the transfer taking place. The details will not only include information regarding pay, contracted hours, and holiday entitlement, but also any information that regards disciplinary or grievance action that particularly relates to that employee.

It is important to note that the Data Protection Act does not prevent the transfer of these details. This is because it is a legal requirement. Both parties, however, must make certain that they comply with the Act when managing the information. This would include, for example, guaranteeing that the details are all accurate, current and secure.

Furthermore, the Information Commissioner’s Office instructs organisations that they should sort out any obligations they have regarding the Data Protection Act in the early stages of such a transfer process. This can prevent excess information being given to the new employer. Another smart step is to let the employee know their information will be passed on, but this is only possible if not restricted by laws relating to insider trading.

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Ian Robinson is senior partner at Churchers Hampshire Solicitors and heads teams of commercial and family solicitors in Hampshire.